The latest Money and Credit report from the Bank of England (BoE) has revealed a decline in mortgage borrowing and consumer credit, reflecting shifting financial dynamics in February.
Net borrowing of mortgage debt by individuals decreased by £0.9bn to £3.3bn, following a slight increase of £0.8bn in January.
Meanwhile, mortgage approvals for house purchases also dipped, falling by 600 to 65,500 in February, after a decrease of 400 in January.
Remortgaging approvals followed a similar downward trend, dropping by 800 to 32,000, reversing the gains of 2,100 seen in the previous month.
Consumer credit borrowing also saw a decline, with individuals borrowing a net £1.4bn in February, down from £1.7bn in January.
Within this category, net borrowing through credit cards fell to £0.8bn from £1.1bn.
Private non-financial corporations (PNFCs) continued to reduce their financial obligations, making net repayments of £1.2bn in February.
This follows a larger net repayment of £2.3bn in January.
The overall net flow of sterling money (M4ex) significantly dropped to £1.2bn throughout the month, a sharp contrast to the £25.1bn recorded in January.
Within this measure, households and non-intermediate other financial corporations (NIOFCs) increased their money holdings by £4.3bn and £1.2bn respectively, while PNFCs reduced their holdings by £4.3bn.
Similarly, the net flow of sterling lending to private sector companies and households (M4Lex) decreased to £5.1bn in February, down from £8.2bn in January.
Households accounted for £4.2bn of this lending flow.
Reaction:
Jason Tebb, president of OnTheMarket:
“With approvals for house purchases, an indicator of future borrowing, dipping slightly again in February after a modest fall in January, market stability and buyer confidence continues to be steady.
“As the rate on newly-drawn mortgages rose again in February, along with the rate on outstanding mortgage stock, affordability remains a concern for borrowers.
“Two rate reductions in the second half of last year, followed by one so far this year is helping but mortgage rates are still higher than many have grown used to in recent years.
“Further reductions from the Bank of England would provide a welcome shot in the arm for the market, particularly with the stamp duty concession ending today.”
Nathan Emerson, CEO of Propertymark:
“With the wider global economy seeing upheaval, many people remain cautious about how this might affect aspects such as the rate of inflation and base rates domestically.
“Although overall, we are seeing an encouraging level of growth year on year within the housing market, it is vital consumers feel confident enough to approach a potential house move when looking at their affordability.
“We have seen a strong start to the year overall, and as we head further towards the summer months, we remain optimistic to see further market momentum.
“It does, however, remain imperative that the rate of inflation remains closely aligned with the initially set target of 2% before the Bank of England will likely consider any new base rate cuts.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“With mortgage approvals falling only slightly in February, it’s steady as she goes for the market.
“The effective interest rate paid on new mortgages rose to 4.53% although since then, we have seen lenders trimming their mortgage rates.
“Further reductions from the Bank of England will help improve confidence and affordability, particularly once the stamp duty concession has ended.
“Remortgaging numbers dipped, perhaps suggesting that borrowers are sticking with their existing mortgage provider rather than shopping around and going through the hassle of applying to another lender.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“The latest net borrowing of mortgage debt numbers are more interesting than usual as January’s increase was more than reversed by February’s decline, graphically illustrating the loss of buyers’ additional stamp duty concession.
“However, on the ground we are not seeing any significant correction but a determination of many to press ahead with moves, many of which were previously brought forward.
“Fewer sales and more protracted negotiations are resulting but plenty of stock means prices are softening a little.”
Mark Eaton, chief operating officer at April Mortgages:
“Mortgage approvals fell for the second consecutive month in February, suggesting that lending activity is slowing as April’s Stamp Duty deadline approaches.
“The increase in activity that we saw at the end of last year was partly driven by buyers trying to get their deals over the line before the deadline hits – but as we get closer, the urgency has started to ebb away.
“Gross lending has surged to its highest level in more than two years, reflecting the fact that many borrowers are still going ahead – but often with higher loan sizes.
“With house prices at near-record highs and mortgage rates significantly higher than what many were used to just a few years ago, affordability is stretched.
“To cope with this, we’re seeing more borrowers turn to long-term fixed rate products that provide access to larger loan amounts and greater payment certainty – peace of mind in a market that still feels unpredictable.”
